Forex News Trading - 3 Benefits and 3 Drawbacks
Go to: Previous Article Next Article
News trading is a practice common among many Forex traders whereby they enter the market just before or following the making of a major economic announcement. Traders and investors like entering the market in such times because the short-term movements that take place provide them with opportunities for quick gains.
3 Merits
The practice of news trading adds at least three merits to your day trading. Importantly, the likelihood that a country's currency would either appreciate or depreciate within minutes of a major financial data announcement enables you to make huge gains from the fluctuations. For instance, if the U.S. Federal Reserve Bank increases the interest rate, then after proper analysis, you can decide to buy the U.S. dollar with the expectation that the value of the currency would appreciate in the short-term.
It has been proven that following the announcement of a key economic report, a country's currency has the potential of either increasing or decreasing in value by nearly sixty to one hundred points within minutes, and you can take advantage of this to make huge gains. Additionally, because the Foreign exchange market runs throughout the day (from 5pm EST on Sunday until 4pm EST Friday) the constant release of financial news and data provides you with the opportunity of integrating news trading into your trader's tool box. Most of the Forex brokers have no less than eight major currencies available and you can choose the one(s) that best suits your trading needs.
Thus, there is always a scheduled release of some important economic data to the public and you can harness such opportunities to make significant profits in your trading. Lastly, there are at least seven major economic announcements that are made each day; therefore, trading the news can make your trading much more reliable, less taxing, and, more so, you get compensated faster!
3 Demerits
On the other hand, trading the news has at least three disadvantages to your trading. When major economic reports are being released to the public, the market conditions tend to be too much volatile and Forex brokers often take advantage of this to increase their spreads, which adds to your trading costs, could prove to be detrimental to your bottom line, and, eventually, could complicate the realization of your trade targets.
Next, in attempting to trade the news, you could also get "locked out" by your broker. This happens when your have executed a trade at the correct time but the order takes sometime before you can see it in your trading platform.
Evidently, this does not give you the ability to make any changes to your order in case the trade goes against you. Imagine if your order fails to show up in your trading platform for a few minutes then, in fear, you enter another tradec Your risk could be two times as much now!
Finally, the buying or selling of currencies during the release of key economic reports increases your risk of experiencing slippage. During such occasions, the market conditions tend to be very volatile; thus, you experience slippage when your order is placed far away from the price you had intended to get it filled.
It is important to note that slippage is the main problem with placing stop or market entry orders since in most cases they are placed far much away from your actual transacted price; at times too much away from your profit targets or stop loss, which can increase your losses.
Conclusion
Major economic news is important in the Forex market because it is the fuel that moves it. Thus, proper analysis of the Forex fundamental variables can prove to be of great benefit to your trading. Nevertheless, do not forget to "buy the rumor but sell the fact."
Article Source: Articlelogy.com
- Credit Cards A big selection of Cards in all flavors: Bad Credit Cards, Secured Cards, Prepaid Cards, Canada Cards, Low Interest Cards -
Word Count: 651
Reduce Your Debts Without Bankruptcy. See How Much You Can Save. Free Debt Analysis
